Shedding Light on Apple's Supply Chain

Apple's big reveal last week had nothing to do with its latest products. Instead, it told the world who most of its suppliers are. It also announced its membership in the Fair Labor Association. This week it will have more news to spread -- the company's planned a big announcement in New York Thursday, and it's indicated it will relate to education.

Apple did something strange this week: It opened up and disclosed details about its suppliers, information about which the famously secretive company had until then kept mum.

However, it seems much of the attention the company has received lately has nothing to do with its supply chain and everything to do with what new product or initiative the company might launch next. As usual, Apple has said very little about that, only disclosing that there will be a press event Thursday at the Guggenheim in New York and hinting that it will focus on education.

While some initial speculators predicted the demise of textbook publishing, a report from Ars Technica suggested the new product will be something more along the lines of an app that's been compared to GarageBand for e-books. Just as the music-making program made original song composition easy even for novice tech users, the new app is expected to make interactive e-book production intuitive for less tech-savvy individuals.

Apple didn't respond to our requests to confirm the report.

"Like other industry dynamics we have seen recently, this is probably no different than winner takes it all. Apple is positioned to take 95 percent of the digital textbook market, because of demographics, since only 2 or 3 percent of the age group under 17 use a Kindle," Trip Chowdhry, senior analyst for Global Equities Research, told MacNewsWorld. "Younger demographics love the iPad. Also, publishers are gravitating to the open format ePub, which both Apple and Google support, and Kindle uses MOBI. Third, Apple is very well-positioned within the textbook value chain participants, which include authors, publishers, faculty and students."

One digital textbook company seems to be trying to keep up, anyway. Kno, a company that produces e-textbooks designed specifically for the iPad and Web, unveiled new features Tuesday, perhaps in an attempt to take attention off Apple's pending announcement.

Kno reminded possible developers and digital textbook designers it already has an ecosystem in place, adding a flashcard feature and an analytics-driven page that helps students gauge their learning progress and study habits.

Suppliers Revealed

In an addendum to its sixth annual supplier responsibility report, Apple recently released a list of 156 production suppliers that it said are responsible for "97 percent of Apple's procurement expenditures for materials, manufacturing and assembly of Apple's products worldwide."

In addition to the big reveal, the company also announced it would join the Fair Labor Association, becoming the first tech company to do so. The development could put pressure on other companies to do the same.

"Given their power on the supply chain, I think any pressure or commentary like this that talks about the supply chain should be welcomed," Anil Doradla, analyst at William Blair & Company, told MacNewsWorld. "They're operating from a position of strength. Their product cycles are pretty robust right now, and they don't have any problems on the execution side, so they can afford to open up models and let people highlight what's going on in their supply chain."

Apple has taken heat in the past for the working conditions found in some of its suppliers' factories. In its responsibility report this year, the company said it performed more than 200 audits and found several factories with various unsatisfactory working conditions. These included conditions such as requiring workers to work more than six consecutive days consecutively; denial of benefits, days off, or health compensation; employee discrimination based on pregnancy; hiring of underage workers; and cases of outside contractors receiving lucrative recruitment fees to labor agencies.

Apple is also a customer of Taipei-based Foxconn, which caught media attention in 2010 after a rash of worker suicides. Apple said it commissioned the help of suicide-prevention experts there.

Apple's revelation of its suppliers could put pressure on factories and competitors to adhere to better standards.

"There's more mixed feelings on a company that has a lot higher margins and is violating labor laws versus a company that is not making money and is violating labor laws," said Doradla. "This move definitely is a good business model and it puts pressure on the supply chain. Not many companies could do what they did, because a smaller or less influential company might not impact the supply chain, but for a company that has the balance sheet and the depth of Apple, this will put material pressure on suppliers and vendors to ensure that whatever laws are out there are being enforced."

Set Your iPhones to Rumble

Besides being home to many of the suppliers that Apple listed, China is also where some of the company's most eager buyers are found. In the first three quarters of 2011, the company sold 5.6 million iPhones there.

When the iPhone 4S was released in Beijing last week, however, sales didn't go so smoothly. In some areas of the country, mobs of buyers created such concerns for security and safety that stores closed before sales started.

In some cases, migrant workers being paid to wait for hours outside stores in order to buy up the devices for a second round of sales, according to a Bloomberg report.

"If you look at Apple as a company, and especially in regards to the iPhone, the more mature societies like North American and Europe have penetration, and growth isn't driven by new subscribers," said Doradla. "There's potential there, but the biggest issue for Apple right now is to ensure that the Android ecosystem doesn't take over. As emerging countries move up the value chain, it's important for Apple to capture them early on."

Rachelle Dragani is a freelance reporter based in Brooklyn, NY. She enjoys staying on top of e-commerce deals, reporting on what new gadget is coming your way, and keeping tabs on anyone trying to hack into your info. Feel free to e-mail her at rachelle.dragani@newsroom.ectnews.com.